Development Bank of the Philippines vs. Commission on Audit

Benefits and allowances of government employees that are fixed by statute or regulation cannot be the subject of a compromise agreement or collective bargaining negotiations; a grant obtained through such means is ultra vires and may be disallowed. Pursuant to settled jurisprudence, recipients of disallowed benefits who received them in good faith are not required to refund the amounts, while the officers who approved the disbursement are liable to refund only upon a finding of bad faith or gross negligence amounting to bad faith.

In 2003, DBP experienced labor unrest because its employees demanded payment of Amelioration Allowance (AA), Cost of Living Allowance (COLA), and Bank Equity Benefit Differential Pay (BEBDP) for the period when DBM Corporate Compensation Circular No. 10 had been declared ineffective. After a series of conferences called a governance forum, DBP management and the employees’ group reached an agreement to end the disruptions. DBP’s Board of Directors approved a one-time grant denominated as the Governance Forum Productivity Award (GFPA) in the total amount of P170,893,689.00, distributed to its officers and employees. Later, DBP’s Executive Committee granted the AA and offset the amounts payable against the GFPA that employees had already received.

• Labor Unrest and the GFPA: In 2003, DBP employees demanded payment of Amelioration Allowance (AA), Cost of Living Allowance (COLA), and Bank Equity Benefit Differential Pay (BEBDP) for the period after DBM Corporate Compensation Circular No. 10 was voided for non-publication. The resulting labor unrest prompted a series of governance forum conferences between management and the employees’ group. To restore industrial peace, DBP’s Board of Directors adopted Board Resolution No. 0133 on May 9, 2003, approving a one-time Governance Forum Productivity Award (GFPA) to all officers and employees, totaling P170,893,689.00.

• The Offset Against the AA: On November 16, 2005, DBP’s Executive Committee passed Resolution No. 0151 granting payment of the AA to employees. The amounts due as AA were offset against the GFPA already received: if the AA exceeded the GFPA, the employee received the difference; if the AA was less, the employee was not required to return the excess GFPA. Other employees who had not received the GFPA received their AA in full.

• COA Audit and Disallowance: An audit team constituted under COA Office Order No. 2003-078 examined the GFPA. Audit Observation Memorandum No. 001 dated January 7, 2005 concluded that the GFPA had no legal basis and recommended a refund. On January 3, 2007, DBP received Notice of Disallowance No. LAS-OGC-2006-001 dated December 18, 2006. The COA Legal and Adjudication Team disallowed the GFPA on the grounds that industrial peace is not a sufficient legal basis for a monetary award and that the grant amounted to a compromise circumventing the rule that only settled claims may be compromised.

• Related Case on the AA: In a separate case, G.R. No. 213126, the Supreme Court already sustained the disallowance of the AA granted by DBP, finding that the Executive Committee acted in bad faith by disregarding DBM Budget Circular No. 2001-03 explicitly prohibiting payment of AA. That disallowance became final and executory, and the COA was implementing a refund of the AA. DBP argued that ordering a refund of the GFPA would result in double recovery because the GFPA had been offset against the AA. The Court noted that the AA disallowance in G.R. No. 213126 covered only the difference between the GFPA already distributed and the later AA granted, and therefore no double recovery would occur.

• Authority to Compromise: DBP argued that Section 9(e) of its charter authorized the Board of Directors to compromise claims for and against the Bank, and the GFPA was a valid compromise agreement that ended a labor dispute threatening bank operations.
• Authority to Fix Compensation: DBP maintained that Section 13 of its charter conferred upon the Board a free hand to fix remunerations and emoluments and expressly exempted DBP from existing laws on compensation, including the Salary Standardization Law. It contended that PD No. 1597 and MO No. 20 requiring prior Presidential approval were inapplicable.
• Mootness: DBP contended that the subsequent grant of the AA and its offset against the GFPA rendered the disallowance of the GFPA moot and academic, as the GFPA had been converted into AA.
• Good Faith: DBP asserted that its officials and employees received the GFPA in good faith, honestly believing the grant was lawful, and thus should not be compelled to refund the amount.
• Double Recovery: DBP argued that because the COA was already implementing a refund of the AA in G.R. No. 213126, ordering a refund of the GFPA would result in the return of the same amounts twice.

• Ultra Vires Compromise: COA maintained that economic benefits of government employees are fixed by law and cannot be a valid subject of compromise or labor negotiations. The GFPA was an illegally obtained monetary benefit that partook of the nature of a compromise agreement prohibited under civil service principles.
• Lack of Absolute Discretion: COA countered that DBP’s authority to fix compensation under Section 13 of its charter was not absolute and remained circumscribed by the principles of the SSL. The policy requiring prior Presidential approval under PD No. 1597 and MO No. 20 applied to DBP.
• Industrial Peace Not a Basis: COA insisted that industrial peace could not serve as a legal and sufficient basis to grant monetary awards not otherwise authorized by law or regulation.
• Solutio Indebiti: COA argued that good faith is not a valid defense against the principle of solutio indebiti, and thus the recipients were liable to refund the disallowed GFPA regardless of their good faith.

• Authority to Compromise Employee Benefits: Whether DBP’s Board of Directors possessed the power under its charter to grant a monetary award to employees as a compromise to settle a labor dispute.
• Conformity with the Salary Standardization Law: Whether the GFPA violated the principles of the Salary Standardization Law and the requirement of prior Presidential approval, despite DBP’s charter exemption.
• Liability for Refund: Whether the recipient employees and/or the approving officers were required to refund the disallowed GFPA in the absence of a specific finding of bad faith by the COA, and whether the prior refund of the AA precluded recovery.

• Authority to Compromise Employee Benefits: The Board’s authority under Section 9(e) of the DBP Charter to compromise or release claims did not extend to contested employee benefits. The GFPA was the product of what was effectively a collective bargaining negotiation — a monetary benefit wrung by employees under threat of operational disruption. Economic terms and conditions of employment in the civil service, including those in chartered government financial institutions, are fixed by law, statute, or regulation, not through collective bargaining agreements or compromise. The GFPA was therefore an ultra vires act beyond the DBP Board’s authority. The COA did not act with grave abuse of discretion in disallowing it.

• Conformity with the Salary Standardization Law: Section 13 of the DBP Charter exempts the bank from existing laws on compensation and position classification, but it concludes with the express proviso that DBP’s system shall nonetheless conform as closely as possible with the principles under the SSL. The Board’s authority to fix remuneration therefore remains circumscribed by those principles. The policy requiring prior Presidential approval for the grant of allowances, as set forth in PD No. 1597 and MO No. 20, was reaffirmed by Congress in Joint Resolution No. 4 (SSL III) and applies to DBP. Industrial peace is not a recognized factor under the SSL for fixing compensation; the contrary argument would allow government employees to use private-sector labor weapons, which has been consistently rejected by the Court.

• Liability for Refund: Although the disallowance was proper, a refund of the GFPA was not warranted. Unlike the related AA case (G.R. No. 213126), where the DBP Executive Committee patently disregarded an express prohibition and was found in bad faith, the present records contained no finding of bad faith by DBP with respect to the GFPA. The Board relied in good faith on its interpretation of its statutory powers to compromise and fix compensation in the interest of the bank, and acted under the honest belief that its charter authorized the settlement. Under established jurisprudence, recipients of disallowed amounts who received them in good faith are not obliged to refund. Officers who approved the disbursement may be held liable only upon a finding of bad faith or gross negligence amounting to bad faith, which was absent here. There was no double recovery because the AA refund concerned only the difference between the GFPA originally distributed and the later AA.

• Government Employee Compensation Not Subject to Compromise or Collective Bargaining — The terms and conditions of employment in the public sector, including economic benefits, are fixed by the legislature or by administrative heads through statutes, circulars, rules, and regulations — not through collective bargaining agreements or compromises. Government employees cannot resort to work stoppages or threats of disruption to extract monetary concessions; employees of chartered government financial institutions may bargain collectively only for non-economic benefits and those not fixed by law. The Court applied this doctrine to invalidate the GFPA as a prohibited monetary benefit obtained through labor negotiations under threat of disruption.

• Refund of Disallowed Benefits — Good Faith Rule — Under the doctrine established in Maritime Industry Authority v. Commission on Audit, government officials and employees who received disallowed benefits or allowances may retain the amounts received if there is no finding of bad faith and the disbursement was made in good faith. Approving officers are required to refund the amounts they personally received only when they are found to be in bad faith or grossly negligent amounting to bad faith. The Court applied this rule to absolve the DBP recipients from refunding the GFPA, given the Board’s honest interpretation of its charter and the absence of any finding of bad faith.

• “Subject to the minimum requirements of wage laws and other labor and welfare legislation, the terms and conditions of employment in the unionized private sector are settled through the process of collective bargaining. In government employment, however, it is the legislature and, where properly given delegated power, the administrative heads of government which fix the terms and conditions of employment. And this is effected through statutes or administrative circulars, rules, and regulations, not through collective bargaining agreements.” — This passage encapsulates the core principle invalidating the GFPA as an unauthorized compromise.

• “employees in the civil service cannot use the same weapons employed by the workers in the private sector to secure concessions from their employees.” — The Court reiterated this settled rule to reject DBP’s argument that industrial peace justified the grant.

• “Government officials and employees who received benefits or allowances, which were disallowed, may keep the amounts received if there is no finding of bad faith and the disbursement was made in good faith. On the other hand, officers who participated in the approval of the disallowed allowances or benefits are required to refund only the amounts received when they are found to be in bad faith or grossly negligent amounting to bad faith.” — This statement encapsulates the refined good faith rule on refund liability that the Court applied to modify the COA ruling.

• Abanilla v. Commission on Audit, 505 Phil. 202 (2005), citing Alliance of Government Workers v. Minister of Labor and Employment, 209 Phil. 1 (1983) — Applied as controlling authority for the principle that government employment terms are fixed by law and not through collective bargaining, directly supporting the disallowance of the GFPA.
• Maritime Industry Authority v. Commission on Audit, 750 Phil. 288 (2015) — Followed as the governing precedent on the rule that recipients of disallowed amounts need not refund when received in good faith, and that approving officers are liable only upon bad faith. This was the basis for absolving DBP’s employees from refund.
• Jacinto v. Court of Appeals, 346 Phil. 656 (1997) — Cited for the proposition that employees in the civil service cannot use the same labor weapons as private-sector workers to secure concessions.

• Section 9(e), Executive Order No. 81, series of 1986, as amended by Republic Act No. 8523 (1986 Revised Charter of the Development Bank of the Philippines) — Authorizes DBP’s Board of Directors to compromise or release claims for and against the Bank. Interpreted not to extend to contested employee benefits fixed by law.
• Section 13, id. — Grants DBP the authority to fix remunerations and other emoluments and exempts the Bank from existing laws on compensation, position classification, and qualification standards, but requires conformity with the principles of the Salary Standardization Law. Applied to circumscribe DBP’s discretion and deny unbridled authority.
• Presidential Decree No. 1597 (Further Rationalizing the System of Compensation and Position Classification in the National Government) — Requires prior Presidential approval upon recommendation of the Secretary of Budget for allowances and benefits of government employees; applied to DBP as a government financial institution.
• Memorandum Order No. 20, Office of the President, dated June 25, 2001 — Directed heads of government-owned and controlled corporations and government financial institutions to implement pay rationalization subject to Presidential approval; applied to reinforce the requirement.
• Joint Resolution No. 4 (Salary Standardization Law III, 2009) — Reaffirmed the policy that coverage, conditions, and rates of allowances and benefits to all government employees shall be rationalized according to policies issued by the President upon recommendation of the Department of Budget and Management.

Carpio, Velasco, Jr., Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Perlas-Bernabe, Caguioa, Martires, Reyes, Jr., and Gesmundo, JJ., concur. Jardeleza, J., no part.

• Leonen, J. — The dissenting opinion was noted but its full text is not reproduced in the provided decision excerpt. N/A